On Friday, RBC Capital Markets updated its outlook on shares of CarMax (NYSE:KMX), the nation's largest retailer of used cars, increasing its price target to $103 from $99 while keeping an Outperform rating on the stock.
Currently trading at $83.07 with a market capitalization of $12.86 billion, CarMax shows a relatively high P/E ratio of 27.75x. According to InvestingPro analysis, the stock is currently trading above its Fair Value. This adjustment follows a review of the company's recent performance and future prospects.
The analyst from RBC Capital cited CarMax's retail unit momentum and cost management as key factors supporting a more optimistic view of the company's financial narrative. InvestingPro data shows the company maintains healthy liquidity with a current ratio of 2.25, though it operates with modest gross profit margins of 11.96%.
Despite potential skepticism regarding market share trends and provisions for loan losses, the firm has raised its forecast for CarMax's fourth-quarter net sales growth to 2.8%, up from a previous estimate of a 0.2% decline. This revision also led to an increase in the adjusted earnings per share (EPS) estimate for the quarter, now set at $0.70, up from the earlier $0.39 projection.
Looking further ahead, RBC Capital has adjusted its projections for CarMax's performance in the fiscal years 2025 and 2026. The firm now anticipates net sales growth of 2.2% and 5.5% for these years, respectively, a slight increase from the prior estimates of 3.3% and 5.5%. The adjusted EPS forecasts for 2025 and 2026 have been revised upward to $4.41 and $5.17, from the former predictions of $3.92 and $4.69.
The new price target of $103 reflects approximately 20 times the revised 2026 estimated adjusted EPS of $5.17. RBC Capital's updated assessment underscores a positive outlook for CarMax, highlighting the company's ability to navigate the challenges of the used car market while capitalizing on growth opportunities.
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